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Saturday, September 1, 2012 Notes From Al The soybean market went to all-time highs responding to three drought years in a row... #1: The moderate drought in the US in 2011 #2: The drought in South America in 2012 #3: The severe drought in the US in 2012 The world is facing unprecedented tightness in the global supply of soybeans. With the recent strong soybean crush reports and active Chinese buying, we are not seeing any evidence of soybean price rationing. The next target on the long term charts is at $18.50. A reminder: No grain markets on Monday due to the Labor Day holiday. The grain markets will open on Monday night, September 3 at 5:00 PM. We will provide our normal AM updates on Tuesday September 4, 2012. Get ready for Wednesday, September 12: That is the day the German high court will decide if the European bail-out using German taxpayer money is legal under the German constitution. If the court indicates that the bail-out is illegal, it could jeopardize the Euro currency. A “no” vote on the bail-out would not only sink the Euro currency, it would be very negative for the global stock and commodity markets. Coincidentally, that is the same day the USDA will release the September USDA Crop Report. We will be hosting a Webinar that starts at 7:15 AM on Wednesday, September 12. It should be an interesting day. Soybean planting should start in Brazil in two weeks. September 15 is the first legal day to plant. However, planting this year may be on hold till it starts to rain in Mato Grosso and the northern provinces. These are the areas that usually plant first, and harvest soybeans first. The El Nino weather pattern has been slow to develop and it has been unseasonably hot and dry in the northern production areas. Is Hurricane Isaac good or bad news for the US corn and soybean crops? A lot will depend on how much rain hits--and where--this long holiday weekend. Many producers will welcome 2 to 4 inches of rain, but if some of the forecasts are right and central and southern Illinois and much of Indiana gets 6+ inches, it will take a toll on corn and soybean yields in those areas. The Fed reports there will be no major changes in current economic policy. It remains ready to act and begin another round of quantitative easing, but did not say when. The Fed will continue to use traditional and non-traditional methods to try and stimulate the economy. More expected on this later in September. _______

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Al’s Market Thermometers The grain markets were slightly higher in a quiet week of trade. Here's the updated set of the most important market factors affecting price now...

Corn Bullish

Bearish

I am anticipating a 1 to 2% drop in the good/excellent ratings for corn on Tuesday. I look for future USDA Crop production reports to drop harvested corn acres by 1 to 2 million acres. Projections for ending stocks to drop to just 650 million bushels by next August.

The large increase in open interest in the last several months make the market vulnerable to an extreme sell-off if and when the funds hit the sell button. Slow corn exports and increasing losses in the hog industry. The possibility of corn imports from Brazil into the SE poultry markets

Concern about ear size in many areas of the Corn Belt that have been dry the last four weeks. Disappointing early yield results. Increasing concern about low test weight corn.

Soybeans Bullish Indications of a 23 MMT drop in soybean production in South America this year. Indications that harvested acres of soybeans may drop by 1 to 2 million acres in future USDA crop production report.

Bearish Global economic uncertainty. The massive long fund position in the soybean market. The potential for record soybean supplies from South America in 2013.

The USDA reduction of ending stocks for 2011-12 and 2012-13 in the recent USDA supply/demand reports. Surging meal demand as ethanol plants produce less DDG’s. 2

Wheat Bullish

Bearish

A large potential reduction in the wheat crop in Europe.

Rain forecasts for dry areas in the southern plains.

Projections for a large drop in wheat acreage in Argentina this year.

Ideal spring wheat crop conditions in the US and Canada, setting up the potential for a large spring wheat crop in North America.

The USDA projection for lower global ending stocks of wheat. Dry weather and reduced wheat crops in the Ukraine and Russia. _______

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Chart of the Week: CCI Index

About this chart: This is the weekly Continuous Commodity Index, or “CCI Index”, chart. This is the index that is the best barometer of overall commodity price direction. The weekly CCI Index chart shows the major 30-year low in December of 2008 at 323. From that low, prices rallied to new all-time highs, putting in a double top in March and April of 2011 at 678. From that high, prices dropped to the low in June of 2012 at 503. Price have been rallying back up and now have resistance at 575. What this means to you: This has been a quiet month in the overall commodity markets with prices putting in an inside week on the weekly chart. A close below 550 will suggest lower prices into October, while a close above 575 will project higher prices into the fourth quarter of 2012. _______

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What To Watch News and events that could move the markets. On Tuesday morning: Watch the amount of rain that hits from the remnants of hurricane Isaac. The current track projects that the Delta will get 6 to 12 inches of rain and that many areas of the central and eastern Corn Belt will get 2 to 4 inches of rain. It too much rain hits in many areas, it will take a toll on crop conditions. On Tuesday afternoon: Watch the USDA crop condition report. My estimate is for corn good/excellent ratings to drop by 1 to 2%. For soybeans I look for the ratings to come in steady to 1% lower than last week. Our crop consultant Dr. Michael Cordonnier is taking the corn and soybean yields lower again. Total corn production may drop below 10 billion bushels this year. Watch the economic news out of Europe. Most of Europe was shut down for vacations in the month of August. Now they will need to come back and work on the debt problems in Greece, Spain and Portugal. Bad news in Europe is usually negative for the commodity markets. _______

What To Do Now Specific recommendations for sales, hedges and other actions to take this coming week This week the target was hit to make another sale of 10% of your 2012 soybean “A” bushels. We have four active recommendations remaining for next week... CORN • 2011 crop: This crop is 100% sold. • 2012 crop: Active Have an offer in to buy the December Corn $7.20 /$6.20 bear put spread on 50% of the “B” bushels if December Corn rallies to the next target at $8.20. 2013 crop: Active: Have an offer in to hedge 10% of your 2013 corn “A” bushels if December 2013 corn rallies to our target at $6.70. SOYBEANS • 2011 crop: This crop is 100% sold. • 2013 crop: Active Have an offer in to hedge 10% of your 2013 soybean “A “bushels if November 2013 soybeans rally to our target at $14.40. WHEAT • 2012 crop: Active: On a 40 cent rally from Friday’s close in the wheat futures, increase 2012 wheat sales by 20%. _______

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Where You Should Be Summary of your marketing actions to date

CORN • 2011 Corn: This crop is 100% sold. • 2012 Corn: Hedges are at 100% of the 2012 “A” bushels. • 2013 Corn: Hedges are at 10% of the 2013 “A” bushels SOYBEANS • 2011 Soybeans: This crop is 100% sold. • 2012 Soybeans: Hedges are at 90% of the 2012 “A” bushels. • 2013 Soybeans: Hedges are at 10% of the 2013 “A” bushels WHEAT • 2012 Wheat: You are 60% sold on your 2012 wheat crop. FUEL: The fall 2012 fuel was locked in with the recommendation in late June. FERTILIZER: Your 2013 fertilizer was locked in with the recommendation in late June. FEED • Feed corn: You locked in 50% of your third and fourth quarter corn feed. • Soybean meal: You locked in 50% of your third and fourth quarter soybean meal. _______

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Ask Al... We had a lot of questions called and e-mailed in this week. Question #1, “What is your next price target for November soybeans? With the rain this week, I want to get some more sold.” My answer: The next equal leg target on the November soybean chart is at $18.50. We will consider that after the September crop report. Question #2, “When will be the time to settle up with my elevator on any shortfall of soybeans I will harvest this fall?” My answer: Great question. We addressed this in the Webinar this week. Get it done the last day of October or the first day of November. At that time you will know the final price for your RP crop insurance policies. Do you have a marketing question? Send your questions to Al at [email protected]. _______

Announcements and Other Information Kluis Calendar Basis & Market Update The Wednesday close for September 2012 CBOT Corn was at $8.10 this week. Cash basis bids were 3 to 5 cents wider at many locations as harvest works north. For soybeans, the bids have all rolled out to the November contract. November soybean futures closed at $17.53 this Wednesday. Cash basis bids were 10 to 20 cents wider. _______

Market Snapshot

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Corn: Long Term

Corn futures closed higher this week. Prices have been locked in a 75 cent trading channel the last three weeks. The corn market closed higher this week but well off the midweek high. A weekly close below the July/August triple bottom at $7.74 would confirm a major top in the corn market. The weekly high at $8.43 ¾ is now major resistance. The weekly chart shows a bull flag with the recent series of lower highs and higher lows. For the week: The weekly corn chart had a 31 cent trading range and closed up 1 cent from last Friday.

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Corn: 2012 Crop

December 2012 Corn futures closed lower this week. Corn futures rallied up to $8.49 on Friday August 10 and have been in a broad trading channel since then. This week the market again put in a Wednesday low. The $8.49 high from Friday August 10 is now major resistance with support at the three week low at $7.89. A close below $7.89 will confirm a major high. For the week: December corn had a 25 cent trading range and closed down 8 cents per bushel.

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Corn: 2013 Crop

December 2013 Corn futures went higher this week. Futures took out resistance at $6.50 and now have resistance at $6.70. Critical support is at the three week low at $6.32. Look for resistance on a rally up to $6.70, where we will consider additional new crop 2013 hedges. For the week: December 2013 Corn had a15 cent trading range and closed up 3 cents per bushel.

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Soybeans: Long term

Soybean futures closed higher this week. Futures rallied to new all-time highs this week on strong demand from China and crop concerns in the US. The recent low at $17.11 is critical long term support with resistance at $18.00. A close below support at $17.11 will confirm a major high. A close above $17.77 will open the door for a test of $18.50. For the week: Nearby soybean futures had a 70 cent trading range and closed up 27 cents per bushel.

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Soybeans: 2012 Crop

November 2012 soybean futures closed higher this week. Futures went up to new contract highs and hit our target at $17.50, testing resistance at $17.45 before selling on Thursday. The Tuesday low at $17.01 is critical short term support with resistance at $17.80. I have several chart objectives that project November soybeans up to $18.50. For the week: November soybean futures had a 70 cent trading range this week and closed up 25 cents per bushel.

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Soybeans: 2013 Crop

November 2013 soybean futures closed higher this week with prices going up to new contract highs. The two week low at $12.75 is short term support with major support at $12.25. Plan to begin placing some additional 2013 hedges if futures rally back to $14.40 or higher. For the week: November soybean futures had a 45 cent per bushel trading range this week and closed up 22 cents per bushel.

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Wheat

September MGE Wheat futures closed higher this week. Wheat futures dropped down to test support at $9.10 before rallying up to test resistance at $9.50. The chart has resistance at $9.75 and then at $10.35. A close over $10.35 will set up a challenge of the $11.20 high from June of 2011. Look for major support at the July low at $9.03. For the week: September wheat futures had a 41 cent trading range with prices closing up 13 cents from last week.

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Oats

December Oats closed higher this week. The oats market rallied up to test resistance at $4.00 . This chart has resistance at the recent high at $4.00. The next chart objective is at $4.10 per bushel where we will consider additional sales. Strategy: Cash sales should be at 100%. New crop 2012 sales should be at 20%. If December oats rally to $4.10 or higher increase sales by 20% to get to 40% sold.

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Canola

November Canola: The canola market closed higher this week. Prices rallied up to test resistance at $640. The chart shows good short term support now at $625. A weekly close below $600 will confirm a major high in the Canola market. Strategy: Cash sales should now be at 100%. New crop 2012 canola sales should now be at 60%. _______

The analysis and information contained within are based on information we believe to be reliable. There is no liability for its use. There is a risk of loss trading futures and options. The Al Kluis Report is published 48 out of 52 weeks a year. Copyright 2012 Al Kluis.

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